Shipping rates for commodities decline to a record 28%

The cost of shipping commodities such as iron ore and coal dropped a record 28%, reaching its lowest since March 2003, because of this years expansion in the global fleet of dry-bulk ships.

Theres just simply over-tonnage on almost all benchmark routes, said Aarti Gupta, an analyst in Delhi for London-based Drewry Shipping Consultants Ltd. I expect the market to continue to fall next month and then start to recover around the middle of September.

The Baltic Dry Index, a measure of freight rates for different-size dry-bulk ships on international trade routes, fell 47 points, or 2.5%, to 1804, its lowest since March 13, 2003, according to Londons Baltic Exchange. The decline makes July the fifth straight month the index has fallen.

The world capacity of dry-bulk ships is set to grow in 2005 by a record 20.6 million deadweight tons, a measure of a vessels capacity for carrying cargo, fuel and supplies, Simpson, Spence & Young, a shipbroker based in London, said in a July 13 report. Supplies are set to rise by 18 million deadweight tons in 2006. Demand for vessels fell as China ran down supplies of iron ore, used to make steel, it had accumulated before the record increases in prices in April, Ms Gupta said. The Baltic Dry Index declined 46% in the three months ending June, the biggest quarterly drop in at least 20 years.

Daily earnings for the largest dry-bulk vessels, called Capesizes, fell 4% to $21,738 a day, more than two-thirds less than at the start of 2005.

The vessels may earn an average $41,000 a day in the third quarter as the world fleet of dry-bulk ships expands, according to eight analysts surveyed by Bloomberg in June. Thats down from $52,887 in the second quarter, data from the Baltic Exchange show.

The global fleet of dry-bulk vessels was made up of 5,975 ships of 332.5 million deadweight metric tons at the end of June, up 6.7% since 2004, according to Simpson, Spence.

Capesizes carry as much as 175,000 metric tons of cargo. Freight rates for such ships on the benchmark route from Australia, the worlds biggest iron ore and coal exporter, to China fell 1.8%, or 13 cents a ton, to $7.12 a ton, according to the Baltic Exchange.

Freight rates for Capesizes shipping coal from the Richards Bay coal terminal in South Africa, the worlds second-biggest coal-export port, to the Netherlands reached $8.97 a ton, down 1.1%, or 10 cents, according to the Baltic Exchange. Shipments from Richards Bay are set to fall 3.8% this week compared with the previous week, according to ship agents Barwil Agencies AS.